26 October 2011

A simple theory of regulations

The number of laws grows rapidly, yet the number of regulators grows relatively slowly. There are always more laws than there are regulators to enforce them, and thus the number of regulators is the binding constraint.

The regulators face pressure to enforce the most recently issued directives, if only to avoid being fired or to limit bad publicity. On any given day, it is what they are told to do. Issuing new regulations therefore displaces the enforcement of old ones.

If the best or most fundamental regulations are the ones issued first, over time the average quality of regulation will decline.